"Monopolistic competition is literally a kind of competition. Hence, there is no deadweight loss in a monopolistically competitive market."
A) The statement is by definition correct but empirically incorrect.
B) The statement is correct.
C) The statement is incorrect.
D) None of the answers is correct.

Question

Quizplus · Accepted Answer

Monopolistic competition refers to a market structure where there are several firms producing differentiated products. Each firm has a degree of market power, because it faces a downward sloping demand curve. As such, each firm charges a price above marginal cost and produces less than the socially efficient output level, causing a deadweight loss. Therefore, the statement is incorrect.

"Monopolistic Competition Is Literally a Kind of Competition